General building confidence falls in Q2

General building confidence in South Africa, as measured by the Construction Industry Development Board (cidb) SME business conditions survey, fell by three notches to 33 index points in the second quarter of 2018 – its worst level in six years.

Confidence deteriorated as underlying indicators remain at weak levels relative to their long-term averages. Constraints to operating conditions were largely unchanged barring the rating of insufficient demand for new building work which increased.

Across the grades, the sharpest fall was registered by Grades 3 and 4 building contractors, but this was not supported by the underlying indicators. For Grades 5 and 6 as well as Grades 7 and 8, the drop in confidence was marginal and came on the back of ongoing pressure on profitability and activity.

Ntando Skosana, project manager for Monitoring and Evaluation at the cidb comments, “Business conditions were rather challenging during the second quarter. Sentiment remains downbeat, with confidence levels persisting well below long-term averages.”

At the provincial level, Western Cape building contractor confidence ticked up by two index points to 56. Confidence was unchanged in the Eastern Cape, while it fell in KwaZulu-Natal. “The worst outcome in confidence was recorded for Gauteng building contractors, where an overwhelming 83% of contractors were dissatisfied with business conditions. It is concerning that this level of confidence marks a joint all-time low,” adds Skosana.

Conclusion

The second quarter of 2018 continued to disappoint in both the building and civil engineering sectors. The confidence level in both sectors lies at 33 index points, which marks the worst level in six years.

Underlying indicators persisted below their long-term averages. Discouragingly, the outlook for activity remains clouded, as the constraint of insufficient demand for new work remains elevated in both cases.

The latest GDP growth statistics from Stats SA shows a fifth consecutive decline in output in the construction sector. Output fell by 1.9% quarter-on-quarter during the first quarter of 2018. The unfavourable outcome for this quarter’s survey results suggest that the negative trend in both building and civil construction activity continued into the second quarter of 2018.